Gold (XAU/USD) reversed earlier gains on Thursday, although remained confined within a multi-week range as traders avoided placing strong directional bets while waiting for clear signals on US-Iran peace talks. After hitting an intraday high of $4,838, XAU/USD is trading around $4,790 at the time of writing, with a slight correction in the US dollar (USD) acting as a headwind.
US-Iran talks build optimism
Markets remain cautiously optimistic that a deal can be reached to end the US-Iran war, after US President Donald Trump indicated that talks could resume this week after last weekend’s talks in Islamabad yielded no breakthrough.
However, according to Bloomberg report, it could take six months for Gulf and European officials to finalize a US-Iran deal. They are also urging an extension of the current ceasefire over that period and calling for the immediate reopening of the Strait of Hormuz to restore energy flows, warning that a prolonged disruption could risk causing a global food crisis.
Separately, Iran is moving to formalize its control over the Strait of Hormuz, with state media reporting that any planned transit tolls will be paid through Iranian banks, underscoring the country’s effort to tighten its grip on a key global oil chokepoint.
Meanwhile, diplomatic efforts are continuing under the leadership of Pakistan. A senior Iranian official said Thursday that “the visit of the Pakistan army chief has helped reduce differences in some areas,” adding that “there are now greater hopes for an extension of the ceasefire and a second round of talks.” However “fundamental disagreements persist on nuclear issues.”
Gold outlook linked to US-Iran developments and oil prices
Although diplomacy has improved risk sentiment, the situation is still not resolved. The potential US-Iran deal remains a key variable for gold, which is currently trading about 10% below its peak since the war began, as oil-driven inflation risks have fueled expectations that central banks, particularly the Federal Reserve (Fed), may need to raise interest rates.
Although crude oil prices have declined from recent highs, prompting some Fed rate-cut bets to resume, they remain elevated as they face significant supply disruptions through the Strait of Hormuz amid a dual blockade by the US military and Iran. This puts inflation concerns at center stage, reinforcing expectations that the Fed will keep interest rates unchanged in the near term.
If tensions ease further and oil prices fall, this could help ease inflationary pressures and reduce the burden on central banks, thereby supporting gold.
St. Louis Fed President Alberto Musallem said that “supply shocks are threatening the Fed’s inflation and employment goals,” adding that “the current rate ceiling is likely to remain appropriate for some time.” He further said that “the oil shock is likely to boost headline inflation, which could remain near 3% by the end of the year.”
Technical Analysis: XAU/USD consolidates below 50-day SMA
From a technical perspective, the daily chart shows that the metal is under pressure below the 50-day simple moving average (SMA), currently near $4,897, which acts as immediate overhead resistance. Meanwhile, the 100-day SMA near $4,708 provides immediate support, keeping the price action limited.
The 14-period Relative Strength Index (RSI) around 51 has moved towards the neutral zone, while the Average Directional Index (ADX) near 24 suggests a modest but not particularly strong underlying trend as the price consolidates below its primary short-term average.
On the downside, a sustained break below the 100-day SMA would signal a breakout of the recent range and increase bearish pressure. Conversely, a daily close above the 50-day SMA would be needed to reduce immediate downside pressure and signal that bulls are gaining control.
Inflation FAQs
Inflation measures the increase in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation does not include more volatile elements such as food and fuel which can fluctuate due to geopolitical and seasonal factors. Core inflation is the figure that economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures changes in the prices of a range of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks because it does not include volatile food and fuel inputs. Interest rates generally go higher when the core CPI rises above 2% and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is the case when inflation falls.
Although it may seem counterintuitive, high inflation in a country increases the value of its currency and vice versa for low inflation. This is because the central bank will typically raise interest rates to tackle high inflation, which will attract more global capital inflows from investors looking for an attractive place to park their money.
In the past, investors turned to gold in times of high inflation because it retained its value, and while investors often bought gold for a safe-haven asset in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will raise interest rates to combat it. Higher interest rates are negative for gold because they increase the opportunity cost of holding gold or keeping money in a cash deposit account compared to an interest-bearing asset. On the other hand, low inflation is positive for gold as it brings down interest rates, making the shiny metal a more viable investment option.
